Proposed tax credits changes: What they mean to you

Cutting the deficit has been one of the Government’s main aims since taking power in 2010. The welfare bill was one of their main targets and £18 billion of cuts have already been announced. Now, a further £10 billion of cuts are set to hit tax credits and child benefit in the UK.

How will these tax credit changes affect you and your family? Keep reading to find out.

Government plans to reduce Child Tax Credit

The Government’s most controversial plan is to deprive unemployed parents of extra support if they have another child. The Daily Mail reports that ‘Treasury sources said child benefit, income support or tax credits could be withheld, putting the jobless in the same position as struggling working parents who simply cannot afford to have larger families.’

The Chancellor has proposed that child tax credits would be cut for families with more than three children.

Writing in the Daily Mail, George Osborne and Iain Duncan-Smith ask: “Is it right that people in work have to consider the full financial costs of having another child while those who are out of work don’t?”

The current system of tax credits and how changes will affect you

The table below shows the maximum amount of Child Tax Credits you can currently receive for bringing up children (if you qualify).

Child Tax Credit elements

What it means

Current maximum annual benefit

Family element (basic element)

The basic payment if you’re responsible for one or more children

£545

Child element

Paid for each of your children in addition to the ‘basic’ (family) element

£2,690

Disabled child element

An extra payment for each disabled child that you have

£2,950

Severely disabled child element

An extra payment for each severely disabled child you have in addition to the disabled element

£1,190

The government proposals would mean a cap on some benefits and tax credits. For example, if tax credits were limited to the first three children, households with larger families would potentially lose their entitlement to some of the ‘child’ element, which would reduce a household’s income by up to £2,690 per child per year. There are around a third of a million unemployed families with three or more children that would be affected.

According to analysis by the Institute of Fiscal Studies (IFS), Mr Osborne would have to take an average £3,000 a year from the 330,000 out-of-work families with three or more children to save £1 billion a year from this group.

Another proposal which could save the Government around £2 billion a year would be to freeze benefits and tax credits. According to the IFS, the Government could scrap the link between benefits and inflation next April. This would cut £2 billion from the welfare budget. However, it would mean that families would not receive an increase in their tax credits despite rises in the cost of living.

Many have been critical of the Chancellor’s plans. Rachel Reeves, Labour’s Shadow Chief Secretary to the Treasury, told ITV News that ‘his deep cuts to tax credits have left thousands of working parents better off if they quit their jobs.’

Do you have three or more children? Could you survive if your tax credits were cut by £3,000 a year? Share your thoughts in the comments below.

I have three children so am concerned that part of my tax credits will be reduced. I am also worried that freezing benefits means we’ll be worse off as the cost of food and our utility bills keeps going up.

My tax credits have been cut twice already this year, my earnings have not increased, whilst the cost of living has.
I have no help at all apart from my tax credits, i pay full rent, council tax, school meals etc.
I am now in a situation where i cannot afford my bills, let alone food.
It is frustrating how the people who don’t work can afford cars, holidays and nights out.
i have not had a holiday in over 10 years, my youngest who is 7 has never been away.
I have neighbors who do not work and have been on holiday 3 times this year and have a new car?
How does it work.
I know i am far from the only person that is suffering these cuts, but i wish some one in the Government would tell us hard working families how we are meant to survive or are we all to claim benefits to live!